FAST FACTS: Major Russian investments in Facebook and Twitter – Rappler

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Published 4:18 PM, November 13, 2017

Updated 4:18 PM, November 13, 2017

Companies and individuals with a high net worth were rocked in early November when the International Consortium of Investigative Journalists (ICIJ) revealed the inner workings of offshore finance through a set of documents called the Paradise Papers.

Tech companies were not safe from the exposé, including the likes of Apple, which keeps a significant portion of its cash outside the U.S. where it can avoid taxes. (READ: “Paradise Papers” reveal offshore deals of Apple, Nike, Lewis Hamilton)

Social media giants Facebook and Twitter were also implicated in the papers, which revealed that one huge investor of theirs had been funded by firms controlled by the Russian government.

Here’s what you should know about that:

The investor

The central figure in this issue is an investment fund called DST Global, founded by Russian billionaire Yuri Milner.

Before Facebook and Twitter went public in 2012 and 2013 respectively, DST Global bought huge shares from the two companies. However, the money that DST Global used to secure the investments had apparently come from firms controlled by the Russian government, as the papers revealed.

For the Twitter deal, it was VTB Bank, which funneled $191 million into DST Global, which was then invested in Twitter. For the Facebook deal, a subsidiary of the Kremlin-controlled energy firm Gazprom funded an offshore company, which then partnered with DST Global for the investment.

When Facebook and Twitter went public, DST Global sold their stakes soon after, reaping huge gains.

Milner’s involvement in the two social media giants had long been public; however, the connection to Russian-controlled firms had only been revealed in the papers now.

Milner’s answers

Yuri Milner has provided responses to the media outfits investigating the papers.

He said that his dealings with Facebook and Twitter are purely business matters and that they are not tainted with political goals. They have always been based on business merits.

He acknowledge the funding from VTB Bank, which helped fund the Twitter deal but said that the bank was a passive investor. He said that VTB is a limited partner investor, which means that the bank did not have controlling interest over Twitter or DST Global.

He also said that only about 5% of his firm’s investment funding came from Russian government institutions. VTB corroborated Milner’s statements, saying that they are purely a commercial bank, and that they had sold their Twitter stakes profitably, making it a successful transaction.

On the flip side, Milner denies that he knew of the Gazprom connection with regards to the Facebook deal. He said that he only learned of the financial links between Gazprom, its subsidiary, and DST Global when media, particularly the ICIJ, contacted him about it in mid-September.

Gazprom subsidiary, Gazprom Investholding, confirmed that they had provided loans. But the loans were directed to an offshore company named Kanton Services, which was a shareholder in investment vehicles used by DST Global in the Twitter and Facebook deals. The subsidiary denied that Russian officials played a part in the loans.

Different political climates

Milner stressed that the political climate had been different then.

Currently, tech giants Facebook, Twitter and Google are embroiled in an investigation regarding Russian ads attempting to politically influence US citizens. He said that diplomatic relations had been better then.

Nevertheless, the ICIJ said that what the papers reveal is that, at one point, the Russian government had still been able to secure some financial interest in the US’s biggest social media companies. (READ: 126 million U.S. users affected by Facebook content from Russian sources – reports)

The DST Global-Facebook-Twitter issue offers a microcosm of the big problem exposed by the Paradise Papers: through offshore maneuvering and clever networks of subsidiaries, companies, individuals and even governments are able to put themselves in advantageous positions.

The lack of immediate transparency – who would have known if the Paradise Papers didn’t come out? – worsens the problem.

VTB Bank and Gazprom

Gazprom is Russia’s largest state-owned corporation while VTB Bank is Russia’s second biggest bank – both of which have historical ties with Russian president Vladimir Putin and other Kremlin officials.

The Gazprom subsidiary that funded the Facebook investment – Gazprom Investholding – is used “politically important and strategically important deals” and is a “powerful political and economic instrument” according to Ilya Zaslavskiy, an adviser at Washington, D.C.-based think tank Kleptocracy Initiative.

VTB, on the other hand, is chaired by Andrei Kostin, a known ally to Vladimir Putin. VTB Bank is known as a known player in Russia’s political system, said the ICIJ. “

Whatever the Kremlin wants, VTB is ready to do,” Sergey Aleksashenko, a Russian banking expert who served on VTB’s board of directors in the ‘90s, told the ICIJ.

How Milner got involved with Facebook

Moscow-born Milner, 55, rose in the 2000s when he turned around the fortunes of internet firm Mail.ru, which is now the country’s most prominent tech firm.

He’d later build a few more tech companies, linking wealthy men to profitable tech investments, in Russia. In 2009, DST Global was established, which then became a global player in investments, particularly among tech companies. In the same year, Milner befriended Facebook CEO Mark Zuckerberg, and later invested in the company.

Historically, Milner doesn’t accept controlling interests in the companies he invests in, so as to avoid conflicts of interest, and allows him to keep his investing options wide open.

DST’s and Mail.ru’s stake in Facebook reportedly peaked at $7 billion, making them the second-largest group of outside shareholders, said ICIJ.

Facebook corroborated Milner’s statements regarding controlling interests, saying that DST had no voting rights or board seat. The Facebook spokesperson also confirmed that DST Global has since sold all their Facebook stakes after they went public.

Stakes at Twitter were also sold shortly after the social network went public.

While the links to Russian government funding are clear, as revealed in the Paradise Papers, ICIJ reports that, overall, there is “no indication that the Kremlin gained influence over Twitter or Facebook or received inside information about the firms as a result of investments associated with Milner.”– Rappler.com

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